<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT OF 1934
Commission file number 333-38157
FIRST WAVE MARINE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0461352
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2102 BROADWAY
HOUSTON, TEXAS 77012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 847-4600
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Number of shares of common stock outstanding as of May 12, 1999: 11,756,955
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<PAGE> 2
FIRST WAVE MARINE, INC.
INDEX TO FORM 10-Q
FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1999
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -March 31, 1999 and
December 31, 1998 1
Consolidated Statements of Operations for the Three Month
Period Ended March 31, 1999 and 1998 2
Consolidated Statements of Cash Flows for the Three Month
Period Ended March 31, 1999 and 1998 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,670 $ 1,654
Investments available-for-sale 46 2,102
Investments held-to-maturity -- 6,262
Accounts receivable, less allowance of $119 in 1999
and $232 in 1998 24,564 19,369
Inventories 1,014 857
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,826 2,615
Prepaids and other 1,397 785
Income tax receivable 766 492
Deferred income taxes 386 826
---------- ----------
Total current assets 32,669 34,962
Property and equipment, net 74,552 73,067
Financing costs, net 3,895 4,021
Goodwill and other intangibles, net 15,113 15,214
Deposits and other 1,185 1,119
---------- ----------
$ 127,414 $ 128,383
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,076 $ 2,944
Accrued liabilities 6,669 6,041
Billings in excess of costs and estimated earnings on
uncompleted contracts 952 255
Accrued interest payable 1,650 4,125
Current portion of long-term debt and capital lease obligation 410 167
Notes payable 195 199
---------- ----------
Total current liabilities 12,952 13,731
Long-term obligations 3,726 3,042
Subordinated debt 6,328 6,328
Senior notes 90,000 90,000
Deferred income taxes 5,254 5,727
Other liabilities 1,514 1,279
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.01 par value, 2,000 shares
authorized, no shares issued -- --
Common stock, $.01 par value, 21,000 shares
authorized, 11,757 shares issued and outstanding
at March 31, 1999 and December 31, 1998 118 118
Additional paid-in capital 3,490 3,490
Retained earnings 4,032 4,668
---------- ----------
7,640 8,276
---------- ----------
$ 127,414 $ 128,383
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
1
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FIRST WAVE MARINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month Period Ended March 31,
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Repair and upgrade $ 21,182 $ 13,368
New construction 3,419 1,019
Environmental services 1,300 1,380
---------- ----------
25,901 15,767
Cost of revenues 19,844 10,182
---------- ----------
Gross profit 6,057 5,585
General and administrative expenses 4,464 3,704
---------- ----------
Income from operations 1,593 1,881
Interest expense - net 2,528 1,726
---------- ----------
Income (loss) before income taxes and extraordinary item (935) 155
Income tax expense (benefit) (299) 83
---------- ----------
Income (loss) before extraordinary item (636) 72
Extraordinary item - loss on extinguishment of debt, net
of income tax benefit of $559 -- (933)
---------- ----------
Net income (loss) $ (636) $ (861)
========== ==========
Basic and diluted earnings per share:
Income (loss) before extraordinary item $ (0.05) $ 0.01
Extraordinary item $ -- (0.08)
---------- ----------
Net income (loss) $ (0.05) $ (0.07)
========== ==========
Weighted-averaged shares:
Basic and diluted 11,757 11,757
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Month Period Ended March 31,
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (636) $ (861)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,541 733
Accretion of discounts on investments held-to-maturity (33) (90)
Provision for doubtful accounts 8 88
Write-off of financing costs -- 469
Deferred income tax provision (33) 204
Change in assets and liabilities, net of effects from acquisitions:
Accounts receivable (5,203) (5,476)
Inventories (157) 36
Costs and estimated earnings in excess of billings on uncompleted contracts 789 1,373
Other assets (612) 916
Income tax receivable (274) (502)
Deposits and other (66) (271)
Accounts payable 132 519
Accrued liabilities 628 931
Billings in excess of costs and estimated earnings on uncompleted contracts 697 --
Accrued interest payable (2,475) --
Other liabilities 235 174
-------- --------
Net cash used in operating activities (5,459) (1,757)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (1,869) (2,768)
Acquisition of businesses, net of cash acquired -- (13,899)
Purchase of investments held-to-maturity -- (10,926)
Proceeds from maturity of investments held-to-maturity 6,274 --
Proceeds from sales of investments available-for-sale 2,077 --
-------- --------
Net cash provided by (used in) investing activities 6,482 (27,593)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of debt -- 90,000
Payments on long-term debt and notes payable (7) (22,767)
Net payments on revolving lines of credit -- (1,027)
Financing costs -- (3,413)
-------- --------
Net cash (used in) provided by financing activities (7) 62,793
-------- --------
Net increase in cash and cash equivalents 1,016 33,443
Cash and cash equivalents at beginning of period 1,654 378
-------- --------
Cash and cash equivalents at end of period $ 2,670 $ 33,821
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Note 1 In the opinion of management the accompanying unaudited
consolidated financial statements reflect all adjustments
necessary to present fairly the financial position of First Wave
Marine, Inc. ("First Wave" or the "Company") as of March 31,
1999 and the results of operations and cash flows for the three
month periods ended March 31, 1999 and 1998. All such
adjustments are of a normal recurring nature. These interim
financial statements should be read in conjunction with the
audited financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1998.
Note 2 The consolidated financial statements include the accounts of
First Wave and its wholly-owned subsidiaries. All material
intercompany transactions are eliminated in consolidation.
Note 3 The results of operations for the three month period ended March
31, 1999 are not necessarily indicative of the results to be
expected for the entire year.
Note 4 Legal Proceedings - On August 13, 1998, one of the Company's
subsidiaries, Newpark Shipbuilding-Brady Island, Inc.
("Newpark-Brady"), was the subject of a search warrant executed
by a multi-agency environmental task force. The government's
search warrant was primarily directed at the facility's
wastewater treatment plant. The Board of Directors of the
Company authorized outside legal counsel to conduct an internal
corporate investigation of the matters raised by the agencies in
their investigation. In addition, the Company promptly undertook
aggressive measures to assure environmental compliance. As of
December 1998, the internal investigation concluded that no
officer or director of Newpark-Brady or the Company participated
in or had knowledge of any non-compliance. The investigation did
find some evidence of past instances of non-compliance with
environmental laws and regulations in connection with
Newpark-Brady's operation and monitoring of the facility's
wastewater treatment system. A state grand jury investigation
into these matters began in early February 1999. In April 1999,
for reasons apparently no more significant than prosecutorial
availability, the investigation was transferred to the federal
government. At this time, the Company cannot estimate the impact
that may result from enforcement action, if any, related to the
government's investigation. The Company does not believe that
any aspects of the matters described above will subject the
parent company, First Wave Marine, Inc., to criminal liability.
Note 5 Year 2000 - The Year 2000 issue relates to limitations in
computer systems and applications that may prevent proper
recognition of the Year 2000. The potential effect of the Year
2000 issue on the Company and its business partners will not be
fully determinable until the Year 2000 and thereafter. If Year
2000 modifications are not properly completed either by the
Company or entities with which the Company conducts business,
the Company's revenues and financial condition could be
adversely impacted.
4
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. All statements other than statements of
historical facts, included in this Form 10-Q, including statements
in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," as well as statements as may
be made by management, orally or in writing related thereto, are
forward-looking statements. Forward-looking statements generally
are accompanied by words such as "anticipate", "believe",
"estimate", "expect" or similar statements. Such forward-looking
statements are subject to certain risks, uncertainties and
assumptions, including (i) risks of reduced levels of demand for
the Company's services resulting from reduced levels of capital
expenditures of the Company's customers in the offshore drilling
rig, offshore support vessel, offshore barge, ship and inland
marine industries, (ii) risks related to the expansion of
operations, (iii) operating risks relating to conversion and
repair of drilling rigs, offshore support vessels, offshore
barges, ships and inland marine vessels, (iv) contract bidding
risks, (v) risks related to dependence on significant customers,
(vi) risks related to the highly leveraged posture of the Company
and (vii) risks related to regulatory and environmental matters
including, risks relating to the ongoing environmental
investigation of one of the Company's subsidiaries. Should one or
more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected.
Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, no assurance can
be given that such expectations will prove to have been correct.
The following discussion of the Company's financial condition,
results of operations, liquidity and capital resources should be
read in conjunction with the Company's Consolidated Financial
Statements and the Notes to the Consolidated Financial Statements
included elsewhere in this report.
GENERAL
The Company's business is primarily derived from providing repair
and upgrade services to inland and offshore marine vessels,
including barges, boats, drilling rigs and ships. To a lesser
extent the Company engages in new construction of such inland and
offshore marine vessels. The Company believes the demand for
repair and upgrade services is generally more stable than the
demand for new construction, but recognizes the need to
continually monitor the mix of new construction and repair and
upgrade services. While trends in oil and natural gas prices can
affect the demand for offshore support vessels and drilling rigs,
the Company anticipates demand will exist for repair activity even
with the short-term downturn in oil and gas prices. Any prolonged
depression in oil and natural gas prices could have a significant
adverse effect on the Company's results of operations.
First Wave currently operates three shipyards in the Houston,
Texas area (Brady Island, Greens Bayou and Pasadena) and three in
the Galveston, Texas area (East Pelican Island, West Pelican
Island and Galveston Island). The Company also provides related
environmental services, including cleaning, degassing and
wastewater treatment. The Company currently employs approximately
1,100 employees at its six shipyards.
RECENT DEVELOPMENTS
On August 13, 1998, one of the Company's subsidiaries,
Newpark-Brady, was the subject of a search warrant executed by a
multi-agency environmental task force. The government's search
warrant was primarily directed at the facility's wastewater
treatment plant. The Board of Directors of the Company authorized
outside legal counsel to conduct an internal corporate
investigation of the matters raised by the agencies in their
investigation. In addition, the Company promptly undertook
aggressive measures to assure environmental compliance. As of
December 1998, the internal
5
<PAGE> 8
investigation concluded that no officer or director of
Newpark-Brady or the Company participated in or had knowledge of
any non-compliance. The investigation did find some evidence of
past instances of non-compliance with environmental laws and
regulations in connection with Newpark-Brady's operation and
monitoring of the facility's wastewater treatment system. A state
grand jury investigation into these matters began in early February
1999. In April 1999, for reasons apparently no more significant
than prosecutorial availability, the investigation was transferred
to the federal government. At this time, the Company cannot
estimate the impact that may result from enforcement action, if
any, related to the government's investigation. The Company does
not believe that any aspects of the matters described above will
subject the parent company, First Wave Marine, Inc., to criminal
liability.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 1999 to the three
months ended March 31, 1998.
Revenues increased 64% to $25.9 million in the 1999 period,
compared with $15.8 million in the 1998 period, primarily due to
three full months of revenue generation by the Pasadena and West
Pelican Island facilities acquired on February 2, 1998, three full
months of revenue generation by the Galveston Island facility
acquired on May 15, 1998, and increased revenue generation by the
East Pelican Island facility which is still operating in a ramp-up
mode.
Cost of revenues rose 95% to $19.8 million in the 1999 period from
$10.2 million in the 1998 period, due to the additional revenue
generated.
Gross profit increased 8% to $6.1 million in the 1999 period from
$5.6 million in the 1998 period, primarily due to the additional
shipyards in operation during the 1999 period and the increased
activity at the East Pelican Island facility. The gross profit
margin decreased to 23% in the 1999 period from 35% in the 1998
period, due in part to the increase in lower margin new
construction revenue, the decrease in higher margin inland boat
and barge repair revenue, and the decrease in higher margin OSV
repair and conversion work as percentages of total revenues.
Additionally, disruptions caused by an initiative to upgrade
production and control systems at the recently acquired Galveston
Island facility had a negative impact of approximately $500,000 on
the gross profit margin.
General and administrative expenses increased 20% to $4.5 million
in the 1999 period from $3.7 million in the 1998 period. General
and administrative expenses as a percentage of revenues for the
1999 period represented 17% of total revenues, as compared to 23%
for the 1998 period. The decrease in general and administrative
expenses as a percentage of revenues is mainly due to the
increased revenues.
Net interest expense rose to $2.5 million in the 1999 period from
$1.7 million in the 1998 period primarily due to three full months
of interest expense on the $90 million 11% Senior Notes reflected
in the 1999 period and only two months interest expense on the
Senior Notes in the 1998 period.
The decrease in income tax expense from approximately $83,000 in
the 1998 period to a net income tax benefit of $299,000 in the
1999 period is directly attributable to the decrease in income
before income taxes.
During the 1998 period, the company recorded an extraordinary item
of ($933,000) which represented a $1.5 million loss on
extinguishment of debt, net of an income tax benefit of $559,000.
No extraordinary item was recorded in the 1999 period.
6
<PAGE> 9
INFLATION AND CHANGING PRICES
The Company does not believe that general price inflation has had
a significant impact on the Company's results of operations during
the periods presented. To the extent that the effects of inflation
are not offset by improvements in manufacturing and purchasing
efficiency and labor productivity, the Company generally has been
able to take such effects into account in pricing its contracts
with customers. There can be no assurance, however, that inflation
will not have a material effect on the Company's business in the
future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ongoing liquidity requirements arise primarily from
its need to service debt, fund working capital, acquire additional
shipyard facilities and make capital improvements to its
facilities. Prior to the Company's Senior Notes offering in 1998,
bank financing and internally generated funds provided funding for
these activities.
The Company's $10.0 million revolving line of credit with a
financial institution matured on April 30, 1999. The Company is
currently negotiating with its lender to renew the line of credit
on more restrictive terms and at a higher rate of interest.
A subsidiary of the Company has an additional $1.75 million
revolving line of credit with a financial institution secured by
accounts receivable. The subsidiary has recently received a
commitment from another financial institution to increase this line
of credit to $3.0 million. The Company anticipates that these
negotiations will be completed in the second quarter.
As of May 12, 1999, the Company did not have any borrowings
outstanding on either of its lines of credit.
During the first quarter of 1999, the Company financed the
purchase of certain machinery and equipment totaling $929,000. The
largest financing was for $860,000 which bears interest at 8% per
annum with principal and interest of approximately $12,000 due
monthly over a seven year period, and a final balloon payment of
$86,000 due at maturity.
Net cash used in operating activities for the three month periods
ended March 31, 1999 and 1998 was $5.5 million and $1.8 million,
respectively. The decrease in cash generated from operations is
primarily due to interest paid on the senior notes.
Net cash provided by (used in) investing activities was $6.5
million and ($27.6) million for the three month periods ended
March 31, 1999 and 1998, respectively. During the 1999 period,
cash provided by investing activities was generated by sales and
maturities of investments which were partially off set by asset
additions.
Net cash (used in) provided by financing activities was $(7,000)
and $62.8 million for the three month periods ended March 31, 1999
and 1998, respectively.
Management believes that with the cash generated from operations,
and, if necessary, borrowings under the Company's lines of credit,
the Company will have sufficient resources available to meet its
anticipated requirements for capital expenditures and working
capital needs through the remainder of fiscal year 1999.
YEAR 2000 DISCLOSURES
Many computer software systems, as well as certain hardware and
equipment containing date sensitive data, were structured to
utilize a two-digit date field meaning that they may not be able
to
7
<PAGE> 10
properly recognize dates in the Year 2000 and beyond. This could
result in significant system and equipment failures. The Company
has completed a detailed process to identify potential Year 2000
problems and to implement solutions for all of its information
technology ("IT") as well as non-IT systems. Necessary actions are
being taken to ensure that both IT and non-IT systems and services
will continue to operate on and after January 1, 2000. The
Company's technology projects are addressing the Year 2000 issue in
those areas where replacement systems are being installed for other
business reasons. Where existing systems are expected to remain in
place beyond 1999, the Company is implementing changes utilizing a
combination of internal and external resources. In addition, the
Company has communicated with its major customers, suppliers and
financial institutions to coordinate year 2000 readiness.
Based on the steps the Company is taking to address this issue and
its progress to date, the Company does not expect the financial
impact of Year 2000 date conversion to be material to its
financial statements. However, the Company can give no assurance
that the systems of other companies on which the Company's systems
rely will be modified or otherwise addressed in a timely manner,
or that any failure by another company would not have a material
impact on the Company's financial statements.
8
<PAGE> 11
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 13, 1998, one of the Company's subsidiaries,
Newpark-Brady, was the subject of a search warrant executed
by a multi-agency environmental task force. The government's
search warrant was primarily directed at the facility's
wastewater treatment plant. The Board of Directors of the
Company authorized outside legal counsel to conduct an
internal corporate investigation of the matters raised by the
agencies in their investigation. In addition, the Company
promptly undertook aggressive measures to assure
environmental compliance. As of December 1998, the internal
investigation concluded that no officer or director of
Newpark-Brady or the Company participated in or had knowledge
of any non-compliance. The investigation did find some
evidence of past instances of non-compliance with
environmental laws and regulations in connection with
Newpark-Brady's operation and monitoring of the facility's
wastewater treatment system. A state grand jury investigation
into these matters began in early February 1999. In April
1999, for reasons apparently no more significant than
prosecutorial availability, the investigation was transferred
to the federal government. At this time, the Company cannot
estimate the impact that may result from enforcement action,
if any, related to the government's investigation. The
Company does not believe that any aspects of the matters
described above will subject the parent company, First Wave
Marine, Inc., to criminal liability.
ITEM 2-5. NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description
*27.1 Financial Data Schedule.
* Filed herewith
(b) Reports on Form 8-K
None
9
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FIRST WAVE MARINE, INC.
May 14, 1999 By: /s/ Frank R. Pierce
---------------------------------
Frank R. Pierce
Vice President and
Chief Financial Officer
May 14, 1999 By: /s/ Dale E. Schexnayder
---------------------------------
Dale E. Schexnayder
Corporate Controller
10
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
*27.1 Financial Data Schedule.
* Filed herewith
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,670
<SECURITIES> 46
<RECEIVABLES> 24,564
<ALLOWANCES> 119
<INVENTORY> 1,014
<CURRENT-ASSETS> 32,669
<PP&E> 81,324
<DEPRECIATION> 6,772
<TOTAL-ASSETS> 127,414
<CURRENT-LIABILITIES> 12,952
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 7,522
<TOTAL-LIABILITY-AND-EQUITY> 127,414
<SALES> 25,901
<TOTAL-REVENUES> 25,901
<CGS> 19,844
<TOTAL-COSTS> 19,844
<OTHER-EXPENSES> 4,464
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,528
<INCOME-PRETAX> (935)
<INCOME-TAX> (299)
<INCOME-CONTINUING> (636)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (636)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
